The SMMT blames the three per cent drop in manufacturing output on a fall in domestic demand and economic uncertainty – domestic vehicle registrations were down 5.7 per cent last year, with production earmarked for the UK market down by 9.8 per cent.

Of the 1.67 million vehicles built, 79.9 per cent were exported with the European Union being the biggest buyer of UK built vehicles. Exports were down 1.1 per cent compared to last year.

The SMMT says the Government needs to urgently reach a post-Brexit transition deal: “This means maintaining the UK’s membership of the single market and customs union and addressing critical details that, if ignored, could have a damaging effect on the industry’s competitiveness.”

While overall vehicle manufacturing was down, engine production in the UK reached record high levels with 2.72 million produced, up 6.9 per cent on 2016. The SMMT says the growth is a result of recent investment into low-emission petrol and diesel engines in the UK. Of the 8,000 people employed in engine production, 3,550 are directly involved in diesel production.

However, the trade body warned that continued uncertainty over diesel policy in the UK will impact the sector. SMMT chief executive, Mike Hawes said: “Concern over the future of diesel is having an effect on total production.”

While the engine manufacturing sector has benefitted from recent investment, the SMMT said overall investment in the UK’s automotive sector is down. Last year saw £1.1 billion invested in the UK’s automotive sector, down from £1.66 billion in 2016 and £2.5 billion three years ago. The SMMT says part of the drop in investment can be explained by Brexit, with manufacturers and businesses delaying investment until the UK’s trade relationship with the EU is confirmed. Hawes added that the though the drop in investment is “significant” investment is “cyclical.”

Hawes said, “The UK automotive industry continues to produce cars that are in strong demand across the world and it’s encouraging to see growth in many markets. However, we urgently need clarity on the transitional arrangements for Brexit, arrangements which must retain all the current benefits else around 10% of our exports could be threatened overnight.

“We compete in a global race to produce the best cars and must continue to attract investment to remain competitive. Whilst such investment is often cyclical, the evidence is that it is now stalling so we need rapid progress on trade discussions to safeguard jobs and stimulate future growth.”

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